The small portfolio

I have an IRA account with about $3400 in it. Many of the trades here at DPO require a six-figure account. We understand that many people need to learn the business of options in little steps. If you want to develop your skills properly – one small step at a time – then please start small. I’m using this IRA for our Small Portfolio.

We have analyzed XLP, which is the Select Sector SPDR Consumer Staples ETF. It is traded in very large volume and has enough option open interest for our purposes. It has the strongest relative strength of the major SPDR funds and that’s why we are focusing on this one for now. The other day, we sold a Feb 50/48 put vertical for 60 cents. That means we sold the 50 put and bought the 48 put paying $60 per vertical option pair. We can make a maximum profit of $60 and could lose a maximum of $140. Sixty dollars plus $140 equals $200 which is the same as the $2 spread between our strikes times 100 shares per contract. Our brokerage firm, Think Or Swim, requires a $400 margin deposit to hold this trade. In my $3400 account I could do this trade with up to 9 contracts.

We are going to try and take advantage of the current market weakness to increase the size of the XLP Vertical position. Earlier today we entered orders to sell another spread, this time at 69 cents. Shortly after noon, those orders were filled. We now have 2 contracts. Check tomorrow for more info on this.

We are short WMT puts, and we have decided to let them expire. Walmart has shown tremendous strength during this week’s market selloff. We see little reason to buy the options back. They will expire tomorrow. If things look different tomorrow, we will reconsider.